Introduction to Finance Exam Review
Course Introduction
Introduction to Finance provides students with a foundational understanding of financial principles and concepts essential for both personal and business decision-making. The course explores topics such as time value of money, risk and return, financial markets, investment strategies, valuation of assets, and the fundamentals of financial statement analysis. Emphasis is placed on developing practical skills for budgeting, investing, and evaluating financial performance, equipping students with the knowledge necessary to navigate the complexities of the financial world in both professional and everyday contexts.
Recommended Textbook
Essentials of Corporate Finance 8th Edition by
Stephen A. Ross
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18 Chapters
1816 Verified Questions
1816 Flashcards
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Page 2
Chapter 1: Introduction to Financial Management
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66 Verified Questions
66 Flashcards
Source URL: https://quizplus.com/quiz/54937
Sample Questions
Q1) Which one of the following statements correctly applies to a sole proprietorship?
A)The business entity has an unlimited life.
B)The ownership can easily be transferred to another individual.
C)The owner enjoys limited liability for the firm's debts.
D)Debt financing is easy to arrange in the firm's name.
E)Obtaining additional equity is dependent on the owner's personal finances.
Answer: E
Q2) In a general partnership,each partner is personally liable for:
A)the partnership debts that he or she created.
B)his or her proportionate share of all partnership debts regardless of which partner incurred that debt.
C)the total debts of the partnership, even if he or she was unaware of those debts.
D)the debts of the partnership up to the amount he or she invested in the firm.
E)all personal and partnership debts incurred by any partner, even if he or she was unaware of those debts.
Answer: C
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3
Chapter 2: Financial Statements, Taxes, and Cash Flow
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110 Verified Questions
110 Flashcards
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Sample Questions
Q1) For the year,Movers United has net income of $31,800,net new equity of $7,500,and an addition to retained earnings of $24,200.What is the amount of the dividends paid?
A)$100
B)$7,500
C)$7,600
D)$15,100
E)$16,700
Answer: C
Q2) Which one of the following decreases net income but does not affect the operating cash flow of a firm that owes no taxes for the current year?
A)Indirect cost
B)Direct cost
C)Noncash item
D)Period cost
E)Variable cost
Answer: C
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4
Chapter 3: Working With Financial Statements
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123 Verified Questions
123 Flashcards
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Sample Questions
Q1) Baugh & Essary has net income of $149,200,sales of $936,800,a capital intensity ratio of 0.74,and an equity multiplier of 1.5.What is the return on equity?
A)6.67 percent
B)15.93 percent
C)32.25 percent
D)42.21 percent
E)44.09 percent
Answer: C
Q2) Which one of the following will increase the profit margin of a firm,all else constant?
A)Increase in interest paid
B)Increase in fixed costs
C)Increase in depreciation expense
D)Decrease in the tax rate
E)Decrease in sales
Answer: D
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Chapter 4: Introduction to Valuation: The Time Value of Money
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68 Verified Questions
68 Flashcards
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Sample Questions
Q1) Your grandparents just gave you a gift of $15,000.You are investing this money for 12 years at 6 percent simple interest.How much money will you have at the end of the 12 years?
A)$15,900
B)$16,000
C)$17,375
D)$25,800
E)$26,938
Q2) Assume the total cost of a college education will be $285,000 when your child enters college in 22 years.You presently have $35,000 to invest.What annual rate of interest must you earn on your investment to cover the cost of your child's college education?
A)8.65 percent
B)9.40 percent
C)10.00 percent
D)10.60 percent
E)11.00 percent
Q3) Draw a graph that illustrates the relationship between interest rates and the present value of $1,000 to be received in one year.
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Chapter 5: Discounted Cash Flow Valuation
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123 Verified Questions
123 Flashcards
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Sample Questions
Q1) Webster Mining is considering the purchase of a new sorting machine.The quote consists of a quarterly payment of $29,600 for seven years at 8 percent interest.What is the purchase price of the equipment?
A)$621,380.92
B)$629,925.66
C)$687,418.22
D)$774,311.28
E)$836,267.35
Q2) The Townhouse Galleries offers credit to its customers at a rate of 1.6 percent per month.What is the effective annual rate of this credit offer?
A)18.45 percent
B)19.09 percent
C)19.41 percent
D)20.04 percent
E)20.98 percent
Q3) Explain the similarities and differences among an ordinary annuity,an annuity due,and a perpetuity.
Q4) Identify four ways that you can use annuity computations in your everyday life.
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Chapter 6: Interest Rates and Bond Valuation
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124 Verified Questions
124 Flashcards
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Sample Questions
Q1) Smiley Industrial Goods has bonds on the market making annual payments,with 13 years to maturity,and selling for $1,095.At this price,the bonds yield 6.4 percent.What must the coupon rate be on these bonds?
A)6.67 percent
B)6.84 percent
C)7.23 percent
D)7.50 percent
E)7.83 percent
Q2) A bond trader just purchased and resold a bond.The amount of profit earned by the trader from this purchase and resale is referred to as the:
A)market yield.
B)yield-to-call.
C)bid-ask spread.
D)current yield.
E)bond premium.
Q3) Explain how a zero coupon bond can create taxable income during a year in which the bond pays no interest payments.Also,explain how the annual taxable amount can be computed.
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Chapter 7: Equity Markets and Stock Valuation
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109 Verified Questions
109 Flashcards
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Sample Questions
Q1) Last year,when the stock of Alpha Minerals was selling for $55 a share,the dividend yield was 3.2 percent.Today,the stock is selling for $41 a share.What is the total return on this stock if the company maintains a constant dividend growth rate of 2.5 percent?
A)6.13 percent
B)6.58 percent
C)6.90 percent
D)7.47 percent
E)7.40 percent
Q2) Inside quotes are defined as the:
A)bid and asked prices presented by NYSE DMMs.
B)last bid and asked price offered prior to the market close.
C)lowest asked and highest bid offers.
D)daily opening bid and asked quotes.
E)last traded bid and asked prices.
Q3) Explain how staggering offsets some of the benefits associated with cumulative voting.
Q4) Explain the differences between a broker market and a dealer market.
Q5) How is the stated value of a preferred stock utilized?
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Chapter 8: Net Present Value and Other Investment Criteria
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113 Verified Questions
113 Flashcards
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Sample Questions
Q1) Which one of the following statements is correct?
A)The internal rate of return is the most reliable method of analysis for any type of investment decision.
B)The payback method is biased toward short-term projects.
C)The modified internal rate of return is most useful when projects are mutually exclusive.
D)The average accounting return is the most difficult method of analysis to compute.
E)The net present value method is applicable only if a project has conventional cash flows.
Q2) Which one of the following methods of analysis has the greatest bias toward short-term projects?
A)Net present value
B)Internal rate of return
C)Average accounting return
D)Profitability index
E)Payback
Q3) Explain why the net present value is considered to be the best method of analyzing an investment.
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10
Chapter 9: Making Capital Investment Decisions
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111 Verified Questions
111 Flashcards
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Sample Questions
Q1) Which of the following should be included when compiling pro forma statements for a proposed investment?
I.Forecasted sales
II.Start-up costs
III.Aftertax salvage value of any assets sold
IV.Anticipated changes in net working capital
A)I only
B)II and IV only
C)I, II, and III only
D)II, III, and IV only
E)I, II, III, and IV
Q2) A cost-cutting project will decrease costs by $58,500 a year.The annual depreciation on the project's fixed assets will be $10,300 and the tax rate is 34 percent.What is the amount of the change in the firm's operating cash flow resulting from this project?
A)$24,552
B)$26,791
C)$25,805
D)$38,610
E)$42,112
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11
Chapter 10: Some Lessons From Capital Market History
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95 Verified Questions
95 Flashcards
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Sample Questions
Q1) The standard deviation measures the _____ of a security's returns over time.
A)average value
B)frequency
C)volatility
D)mean
E)arithmetic average
Q2) One year ago,Peyton purchased 3,600 shares of Broncos stock for $101,124.Today,he sold those shares for $26.60 a share.What is the total return on this investment if the dividend yield is 1.9 percent?
A)-3.98 percent
B)-3.40 percent
C)-2.29 percent
D)1.10 percent
E)3.40 percent
Q3) Over the period of 1926-2011,U.S.Treasury bills had an average return of 3.8 percent while inflation averaged 3.1 percent.Based on this historical record,is it safe to assume that an investor in U.S.Treasury bills will enjoy a positive real rate of return each year? Why or why not?
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Chapter 11: Risk and Return
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106 Verified Questions
106 Flashcards
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Sample Questions
Q1) BJB,Inc.stock has an expected return of 15.15 percent.The risk-free rate is 3.8 percent and the market risk premium is 8.6 percent.What is the stock's beta?
A)1.19
B)1.21
C)1.32
Q2) You would like to create a portfolio that is equally invested in a risk-free asset and two stocks.One stock has a beta of 1.15.What does the beta of the second stock have to be if you want the portfolio to be equally as risky as the overall market?
A)0.78
B)0.97
C)1.23
D)1.55
E)1.85
Q3) Explain the differences between total risk,unsystematic risk,and systematic risk.Identify which risk is measured by standard deviation and which is measured by beta.
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13
Chapter 12: Cost of Capital
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98 Flashcards
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Sample
Questions
Q1) USA Manufacturing issued 30-year,8.5 percent semiannual bonds 6 years ago.The bonds currently sell at 101 percent of face value.What is the firm's aftertax cost of debt if the tax rate is 30 percent?
A)5.88 percent
B)5.62 percent
C)5.76 percent
D)6.59 percent
E)8.40 percent
Q2) Electronic Products has 35,000 bonds outstanding that are currently quoted at 102.3.The bonds mature in 11 years and carry a 9 percent annual coupon.What is the firm's aftertax cost of debt if the applicable tax rate is 30 percent?
A)4.47 percent
B)4.79 percent
C)6.07 percent
D)6.98 percent
E)8.67 percent
Q3) Explain the concept of the subjective approach to assigning a required return to a project.
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14
Chapter 13: Leverage and Capital Structure
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94 Flashcards
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Sample Questions
Q1) Marcos & Sons has no debt.Its current total value is $58 million.What will the company's value be if it sells $21 million in debt and has a tax rate of 34 percent? Assume debt proceeds are used to repurchase equity.
A)$58,220,000
B)$60,370,000
C)$62,330,000
D)$64,560,000
E)$65,140,000
Q2) Florence Mills is an all-equity firm with a total market value of $250,000.The firm has 8,000 shares of stock outstanding.Management is considering issuing $50,000 of debt at an interest rate of 7 percent and using the proceeds on a stock repurchase.Ignore taxes.How many shares can the firm repurchase if it issues the debt securities?
A)1,600 shares
B)1,618 shares
C)1,647 shares
D)1,656 shares
E)1,699 shares
Q3) Explain how taxes affect the value of a firm based on M&M Proposition I.
Q4) Explain why the capital structure of a firm is irrelevant to equity investors.
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Chapter 14: Dividends and Dividend Policy
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94 Flashcards
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Sample Questions
Q1) Given the current tax laws,which one of the following statements is correct?
A)Both stock repurchases and cash dividends are treated equally for tax purposes for individual shareholders.
B)Stock repurchases give individual shareholders more control over their personal taxes than do cash dividends.
C)Cash dividends are preferable to stock repurchases from the individual shareholder point of view.
D)Stock repurchases offer more tax benefits to the issuer than do cash dividends.
E)Cash dividends offer more tax benefits than do stock repurchases for the issuer.
Q2) Elkins Feed Lot is an all-equity firm with positive net income.Which one of the following will result if the firm pays a cash dividend?
A)Number of shares outstanding will increase
B)Earnings per share will decrease
C)Total assets will remain constant
D)Price-earnings ratio will decrease
E)Total equity will increase
Q3) What is the difference between a tender offer and a targeted repurchase?
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Page 16
Chapter 15: Raising Capital
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72 Flashcards
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Sample Questions
Q1) Which of the following are important factors to consider when seeking a venture capitalist?
I.Exit strategy
II.Management style
III.Personal contacts
IV.Financial strength
A)I and III only
B)II and IV only
C)III and IV only
D)II, III, and IV only
E)I, II, III, and IV
Q2) Provide two arguments in favor of IPO underpricing and two arguments against IPO underpricing.
Q3) Which one of the following is an aftermarket function performed by the underwriters of a securities issue?
A)Distributing the registration statements
B)Distributing the red herrings
C)Filing a letter of comment with the SEC
D)Exercising the Green Shoe option
E)Setting the market price
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Chapter 16: Short-Term Financial Planning
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108 Verified Questions
108 Flashcards
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Sample Questions
Q1) Which one of the following is a use of cash?
A)Selling inventory at cost
B)Paying a supplier for inventory you purchased last month
C)Borrowing money from a local bank
D)Collecting payment from a customer
E)Selling a fixed asset such as a piece of machinery
Q2) The Monster Truck operates several specialty vehicles that provide hot food and beverages for firms that have workers employed in outlying regions.The company has annual sales of $350,500.Cost of goods sold average 48 percent of sales and the profit margin is 5.2 percent.The average accounts receivable balance is $44,700.On average,how long does it take The Hot Truck to collect payment for its services?
A)7.84 days
B)24.17 days
C)46.55 days
D)48.33 days
E)51.90 days
Q3) How can a firm benefit from preparing a short-term financial plan?
Q4) How should a firm determine whether a restrictive or a flexible financial policy is best given its current situation?
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Chapter 17: Working Capital Management
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Sample Questions
Q1) Which of the following will tend to increase the credit period?
I.Increase in the buyer's inventory period
II.Decrease in the buyer's inventory period
III.Increase in the buyer's operating cycle
IV.Decrease in the buyer's operating cycle
A)I and III only
B)I and IV only
C)II and III only
D)II and IV only
E)II only
Q2) Which one of the following is a primary benefit of implementing zero-balance accounts into a cash management system?
A)Increased disbursements float
B)Total elimination of all safety stocks
C)Additional cash availability
D)Decreased collection float
E)Elimination of all float
Q3) What are some of the pros and cons of a JIT inventory management system?
Q4) Identify some of the specific costs firms incur if their current asset levels are either too high or too low.
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Chapter 18: International Aspects of Financial Management
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91 Flashcards
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Sample Questions
Q1) The spot rate on the Canadian dollar is 1.25.Interest rates in Canada are expected to average 4.2 percent while they are anticipated to be 3.3 percent in the U.S.What is the expected exchange rate three years from now?
A)Can$1.2960
B)Can$1.2841
C)Can$1.2613
D)Can$1.2108
E)Can$1.1971
Q2) Suppose a U.S.firm builds a factory in China,staffs it with Chinese workers,uses materials supplied by Chinese companies,and finances the entire operation with a loan from a Chinese bank located in the same town as the factory.This firm is most likely trying to greatly reduce,or eliminate,which one of the following?
A)Interest rate disparities
B)Short-run exposure to exchange rate risk
C)Long-run exposure to exchange rate risk
D)Political risk associated with the foreign operations
E)Translation exposure to exchange rate risk
Q3) Explain how the forward exchange market can help reduce short-run exposure to exchange rate risk.
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Page 20